Due to the strong recession underway, some Wall Street banks expect a collapse of activity and a slight drop in inflation by the end of the year. In its latest reports, JP Morgan estimated a decline in the economy of 3.6% annually and a 200% increase in retail prices in 2024 – about 11 points less than last year -, therefore The rebound in activity would arrive in 2025 after the “great stagflation.”
The entity analyzed the latest official data that showed a GDP drop of 1.2% monthly in January. Although he considered that the contraction of domestic demand was necessary to correct previous imbalances, he recognized that “the combination of policies chosen may have exacerbated the contraction in domestic demand amid capital controls, the devaluation of real purchasing power, the adjustment of spending and the reduction of inflation.
In the report to which he accessed Clarion, The bank highlighted that since the peak observed last October, real activity lost 5.8% until January 2024 and projected a severe adjustment in domestic demand for the first semester due to three factors: the devaluation and its consequent inflationary acceleration, the liquefaction of the pesos due to the need to correct relative prices and very negative real rates, yeThe government’s “draconian” fiscal adjustment.
Given the collapse of industry, commerce and construction, JP Morgan estimated a collapse of 15.3% in the first quarter and a recovery in the second quarter, to close the year with a fall of 3.6%. “The speed and depth of free fall dwarfs the recessions of 2018 (when a sudden cessation of fund inflows triggered a devaluation) and the adjustment of 2015-2016, when the Macri government took office,” the report warned.
According to the entity’s projections, The rebound would arrive in 2025 with growth of 5.2% and inflation of 40%. The rally in sovereign bonds reflects a certain optimism on Wall Street based on positive data such as the trade surplus, the increase in reserves, the fiscal surplus and the slowdown in inflation in recent months from 25.5% in December to 20.6% in January and 13.2% in February.
Regarding the exchange rate, andl JP Morgan estimated one dollar at $1,250 in June, $1,400 in September and $1,500 in Decemberwhich in the latter case implies an increase of 74% from the current price of $858. This adjustment implies a devaluation below the expected inflation of 200% for this year, while the Government continues with a rate of increase close to the 2% monthly, which causes an appreciation of the peso in relation to other currencies.
Despite the decision to step on the dollar, the current cash account registered a surplus of US$ 1.6 billion in February, which placed the accumulated positive balance in the year at US$ 3.5 billion compared to the deficit of 2.9 billion registered in the same period of the previous year. “It should be noted that most of the improvement is explained by lower import payments,” said the report from the bank’s research area.
In other words, the decrease in cash imports was mainly due to the new restrictions on the payment of these operationssince the BCRA only allows payment in four installments (30, 60, 90 and 120 days), which in turn is the other side of the accumulation of new commercial debt with importers and which increased by US$ 5.7 billion between January and February, according to the entity’s calculations.
Thanks to these measures, the Central Bank continues to accumulate reserves and purchased US$11.2 billion since December 10 (consistent with a daily average of US$157 million). According to JP Morgan, net reserves are negative by US$ 5,000 million (including the amortizations of the series 2 of the Bopreal bond for US$ 1,500 million in the next 12 months), and liquid reserves total US$ 7,600 million (from almost void when Javier Milei took office).
Finally, the report highlighted the smaller exchange rate gap, which is now around 30%. The reduction is due to the “blend” dollar, for which exporters settle 20% of their sales in cash with settlement, and to the validity of exchange controls. Going forward, the bank expects a lower accumulation of reserves if the payment of imports is normalized, although the modification of the “blend” dollar could accelerate purchases.